Surprise drop in UK unemployment to 4.7% as John Healey’s first budget looms

Surprise drop in UK unemployment to 4.7% as John Healey’s first budget looms Latest ONS data presents mixed picture amid slump in job vacancies and analysts warning labour market is ‘running on idle’

Unemployment in the UK has fallen unexpectedly in the final snapshot of the jobs market before John Healey’s first budget next week.

The jobless rate fell to 4.7% in the three months to August, from 4.9%, according to the Office for National Statistics . City economists had forecast a rise to 5%.

In a further boost to the chancellor, the figures also showed that the number of payrolled employees rose by 13,000 between August and September, to 30.3 million.

However, a slump in the number of job vacancies illustrated what some economists said was an economy moving sideways. After hitting a peak of 1.3m in the period after the pandemic, vacancies fell by 21,000 to 691,000 in the three months to September, the lowest since 2021 during the Covid pandemic.

Ben Harrison, director of the Work Foundation thinktank at Lancaster University, said the fall in unemployment “should not make the government complacent ahead of next week’s budget”.

He said: “The UK is still amid a jobs drought with vacancies at their lowest for over 12 years outside of the pandemic.”

Vacancies fell particularly sharply across the construction sector, suggesting Britain’s builders cut back on hiring last summer.

Data on wage growth was mixed. Stripping out bonuses, average pay growth rose to 3.7% from 3.6%. However, when bonuses are included the rate fell to 3.7% from 3.9%, indicating that only a few workers received bonuses.

Wage growth in the UK remains above inflation, which was 3.1% in August and is expected to rise to 3.4% when figures for September are published on Wednesday. The Bank of England is widely expected to raise interest rates in response to higher prices at next month’s meeting of the monetary policy committee (MPC).

The pound rose against the dollar after the labour market figures were released, by about half a cent to $1.3352, as investors bet on the increased likelihood of a rate rise from 3.75% as early as next month.

Members of the MPC are split on the need for further increases in the cost of borrowing with some, including the Columbia University professor Alan Taylor, arguing that the committee needs to wait several months to see whether costs and wages continue to rise.

Financial markets expect interest rates to rise to between 4.75% and 5% by the middle of next year, although the consultancy Capital Economics said recent improvements in the labour market were modest and the central bank would probably cap interest rates at 4.25%.